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The 2005 annual meeting of shareholders of The Neiman Marcus Group, Inc. will be held at 8:00 a.m., Eastern Standard Time, on Friday, January 14, 2005, at the Marriott Boston Newton Hotel, 2345 Commonwealth Avenue, Newton, Massachusetts 02466. The proxy statement and proxy card from the Board of Directors are enclosed with this notice of annual meeting. The 2004 Annual Report, which is not part of the proxy soliciting material, is also enclosed.

The annual meeting is being held for the following purposes:

These items are fully described in the proxy statement, which accompanies this notice. Only shareholders of record at the close of business on November 17, 2004 will be entitled to vote at the annual meeting. To ensure that your vote is recorded promptly, please vote as soon as possible. Most shareholders have three options for submitting their vote: (1) via the Internet, (2) by phone, or (3) by mail. For further details, see "How to Vote" on page 3. If you have Internet access, we encourage you to record your vote on the Internet. It is convenient, and it saves processing time and costs.

GENERAL INFORMATION REGARDING
ANNUAL MEETING

These proxy materials are being provided in connection with the solicitation by the Board of Directors of The Neiman Marcus Group, Inc. (the "Company," "Neiman Marcus," "we," or "us"), a Delaware corporation, of proxies to be voted at the 2005 annual meeting and at any adjournment or postponement.

The Company's annual meeting will be held on Friday, January 14, 2005, beginning at 8:00 a.m., Eastern Standard Time, at the Marriott Boston Newton Hotel, 2345 Commonwealth Avenue, Newton, Massachusetts 02466.

This Proxy Statement, form of proxy and voting instructions are first being mailed on or about November 22, 2004.


Record Date and Shareownership

If you complete and submit your proxy, the persons named as proxies will vote the shares represented by your proxy in accordance with your instructions. If you submit a proxy card but do not fill out the voting instructions on the proxy card, the persons named as proxies will vote the shares represented by your proxy as follows:

Record holders of the Company's Class A Common Stock and Class B Common Stock at the close of business on November 17, 2004 will be entitled to one vote per share at the annual meeting. As of November 17, 2004, there were 29,372,487 shares of Class A Common Stock and 19,426,436 shares of Class B Common Stock issued, outstanding and entitled to vote. However, because only Class B directors are standing for election at the 2005 annual meeting, only holders of Class B Common Stock will be entitled to vote on the election of directors at this annual meeting. In all other matters being submitted to a vote of the shareholders at the annual meeting, holders of Class A Common Stock and Class B Common Stock will vote together as a single class.

To ensure that your vote is recorded promptly, please vote as soon as possible. Most shareholders have three options for submitting their votes: (1) via the Internet, (2) by phone, or (3) by mail. If you have internet access, we encourage you to record your vote on the Internet. When you vote via the Internet or by phone prior to the meeting date, your vote is recorded immediately and there is no risk that postal delays will cause your vote to arrive late and therefore not be counted.

If you participate in The Neiman Marcus Group, Inc. Employee Savings Plan, your proxy will serve as a voting instruction for Fidelity Investments, the plan's record keeper. If Fidelity does not receive voting instructions for shares in your plan account, your shares will not be voted. You must submit your voting instructions for your shares to Fidelity by the close of business on January 10, 2005 to allow Fidelity time to receive your voting instructions and vote on behalf of the plan.

Revocation of Proxies
If your shares are held in your name, you may revoke your proxy at any time prior to the meeting date by:

Required Vote
Each share of Class A and Class B Common Stock outstanding on the record date will be entitled to one vote on each matter, other than the election of directors. Because only Class B directors are standing for election at the 2005 annual meeting, only holders of the Class B Common Stock will be entitled to vote on the election of directors. The four nominees for election to the Board of Directors who receive the most votes will be elected. Ratification of the Company's independent auditors, approval of The Neiman Marcus Group, Inc. 2005 Stock Incentive Plan (the "2005 Plan") and adoption of the shareholder proposal will each require an affirmative vote of the majority of the shares of Class A and Class B Common Stock present or represented by proxy at the annual meeting.

For the election of directors, withheld votes do not affect whether a nominee has received sufficient votes to be elected but will be counted in determining whether a quorum has been reached. For the purpose of determining whether the shareholders have approved matters other than the election of directors, abstentions are treated as shares present or represented by proxy and will be counted for the purpose of determining whether a quorum has been reached. Abstaining has the same effect as a negative vote. Shares held by brokers who do not have discretionary authority to vote on a particular matter and who have not received voting instructions from their clients are not counted or deemed to be present or represented by proxy for the purpose of determining whether shareholders have approved that matter, but they are counted as present for the purpose of determining the existence of a quorum at the annual meeting if the broker returns a properly executed proxy. Please note that banks and brokers cannot vote on their clients' behalf on "non-routine" proposals, such as adoption of the 2005 Plan and the shareholder proposal included in this year's proxy statement.

Under Section 214 of the Delaware General Corporation Law, the addition of cumulative voting would require an amendment to our Certificate of Incorporation and shareholders must approve any such amendment. No such proposal to amend the Company's Certificate of Incorporation has been placed before the shareholders, but if it were, it would require the favorable vote of the holders of shares representing at least a majority of the issued and outstanding Class A Common Stock and Class B Common Stock voting as a single class.

HOW TO VOTE
Your vote is important. You can save the expense of a second mailing by voting promptly. Shareholders of record can vote by telephone, on the Internet or by mail, as described below. If you are a beneficial owner, please refer to your proxy card or the information forwarded by your bank, broker or other holder of record to see which options are available to you.

The Internet and telephone voting procedures are designed to authenticate shareholders by use of a control number and to allow you to confirm that your instructions have been properly recorded. If you vote by telephone or the Internet, you do not need to return your proxy card.

Vote by Telephone
You can vote by calling the toll-free telephone number on your proxy card. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. If you are located outside the U.S. and Canada, see your proxy card for additional instructions.

Vote on the Internet
You can also choose to vote on the Internet. The website for Internet voting is www.eproxy.com/nmg. As with telephone voting, you can confirm that your instructions have been properly recorded. If you vote on the Internet, you can also request electronic delivery of future proxy materials.

Vote by Mail
If you choose to vote by mail, simply mark your proxy, date and sign it, and return it in the postage-paid envelope provided.

Electronic Delivery of Proxy Materials and Annual Report
The notice of annual meeting and proxy statement and the 2004 Annual Report are available on our website at www.neimanmarcusgroup.com. Instead of receiving paper copies of the notice of annual meeting, Annual Report and proxy statement in the mail, shareholders can elect to receive an e-mail, including an electronic link to these documents. Opting to receive your proxy materials online will save the cost of producing and mailing documents to your home or business, and will also give you an electronic link to the proxy voting site.

Delivery of Documents to Shareholders Sharing an Address
In some cases, only one copy of our 2004 Annual Report and this proxy statement are being delivered to multiple shareholders sharing an address unless we have received contrary instructions. We will gladly deliver a separate copy of the 2004 Annual Report and this proxy statement to shareholders sharing an address upon written or oral request. If, on the other hand, you have received multiple copies of our 2004 Annual Report and this proxy statement and wish to receive a single copy in the future, we will gladly deliver one copy of our Annual Report and proxy statement upon written or oral request. Written requests should be sent to The Neiman Marcus Group, Inc., Attn: Secretary, One Marcus Square, 1618 Main Street, Dallas, Texas 75201. Oral requests should be made by calling our Investor Relations Department at (214) 743-7625.

Shareholder Account Maintenance
Our transfer agent is Mellon Investor Services LLP. All communications concerning accounts of shareholders of record, including address changes, name changes, inquiries as to requirements to transfer shares of Class A Common Stock or Class B Common Stock and similar issues can be taken care of by calling The Neiman Marcus Group Shareholder Services' toll-free number, 1-800-411-6657, or contacting Mellon through their website at www.melloninvestor.com.

NAMED EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

Karen W. Katz, age 47
President and Chief Executive Officer of Neiman Marcus Stores since December 2002. Ms. Katz served as President and Chief Executive Officer of Neiman Marcus Direct from May 2000 until November 2002; Executive Vice President of Neiman Marcus Stores from February 1998 until May 2000; and as Senior Vice President of Neiman Marcus Stores from September 1996 until February 1998.

Brendan L. Hoffman, age 36
President and Chief Executive Officer of Neiman Marcus Direct since December 2002. Mr. Hoffman served as Vice President of the Neiman Marcus Last Call Clearance Division from August 2000 to December 2002 and as a Divisional Merchandise Manager of Bergdorf Goodman, a subsidiary of the Company, from October 1998 to August 2000.

James J. Gold, age 40
President and Chief Executive Officer of Bergdorf Goodman since May 2004. Mr. Gold served as Senior Vice President, General Merchandise Manager of Neiman Marcus Stores from December 2002 to May 2004. He also served as Division Merchandise Manager of Neiman Marcus Stores from June 2000 to December 2002 and as Vice President of the Neiman Marcus Last Call Clearance Division from March 1997 to June 2000.

James E. Skinner, age 51
Senior Vice President and Chief Financial Officer since June 2001. Prior to joining the Company, Mr. Skinner served as Senior Vice President and Chief Financial Officer of Caprock Communications Corp. from August 2000 through December 2000. From 1994 until 2000, Mr. Skinner served as Executive Vice President, Chief Financial Officer and Treasurer of CompUSA Inc.


THE BOARD, BOARD COMMITTEES AND MEETINGS

The Company's Board of Directors currently consists of 11 members. Each member is nominated by the Nominating and Corporate Governance Committee and elected by the shareholders. The Board is the ultimate decision-making body of the Company except with respect to those matters reserved to the shareholders. The primary responsibilities of the Board are oversight, counseling and direction of the Company's management in the long-term interests of the Company and our shareholders. The Board is also responsible for hiring, overseeing and evaluating management, particularly the Chief Executive Officer. The positions of Chairman of the Board and Chief Executive Officer are held by separate persons to aid in the Board's oversight of management. In addition, the Board has designated Matina S. Horner as the Lead Independent Director. Board agendas include regularly scheduled sessions for the independent directors to meet without management present, and the Board's Lead Independent Director leads those sessions.

The Board held six meetings during fiscal year 2004. All directors are expected to attend each meeting of the Board and the committees on which he or she serves, and are also expected to attend the annual shareholders' meeting. In fiscal year 2004, no director attended less than 75 percent of the meetings of the Board and committees on which he or she served. All directors except one attended the 2004 annual meeting.

Although the Board does not have a formal policy that seeks to limit the number of board seats held by an independent director, the Board's guideline of 100 percent attendance at meetings reflects the Board's expectation that each director will meet his or her commitments. The time commitments of directors vary substantially with regard to their individual involvement with their primary positions; their involvement with other commercial, charitable and other organizations; and otherwise. A director's involvement with other boards is just one factor to be considered in deciding if a director can devote the time and attention necessary to be an informed and effective director.

A majority of the Board are of independent directors. The Board has affirmatively determined that Matina S. Horner, Paula Stern, Gary L. Countryman, Carl Sewell, John R. Cook, Vincent M. O'Reilly, and Walter J. Salmon qualify as "independent" in accordance with the published listing requirements of the New York Stock Exchange (the "NYSE"). In addition, the Board has determined as to each independent director that no material relationships exist which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

The Board and its committees meet throughout the year on a set schedule, and also hold special meetings and act by written consent from time to time as appropriate. The Board has delegated various responsibilities and authority to different Board committees. Board members have access to all Company employees outside of Board meetings, and the Board has a program that encourages each director to visit Company facilities and meet with local management at those facilities.

Communications with the Board
A toll-free number, 866-493-1854, has been established whereby shareholders and other interested parties may communicate with the full Board, members of the Audit Committee, the non-management members of the Board, or any individual director, including the presiding director. Such communications should indicate to whom they are addressed. Any comments received that relate to accounting, internal accounting controls or auditing matters will be referred to the Chairman of the Audit Committee unless the communication is otherwise addressed. Parties may communicate anonymously and/or confidentially if they desire. All communications received will be collected by the General Counsel of the Company and forwarded to the appropriate director or directors.

Board Committees and Charters
The Board has established four standing committees to assist the Board in carrying out its duties: the Executive Committee, the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. Each of the Board committees has a written charter approved by the Board. Copies of each charter are posted on the Company's web site at www.neimanmarcusgroup.com under the "Investor Information" section. The members of the four standing committees are as follows:

Audit Committee. The Audit Committee is composed of four directors who qualify as "independent" under standards established by the U.S. Securities and Exchange Commission (the "SEC") and the corporate governance and other listing standards of the NYSE as in effect from time to time. The Board of Directors has determined that Vincent M. O'Reilly, Chairman of the Audit Committee, meets the definition of "audit committee financial expert" as such term is defined under the rules of the SEC. The Board of Directors has also determined that Gary L. Countryman, Carl Sewell, and John R. Cook possess the necessary level of financial literacy required to enable them to serve effectively as Audit Committee members. Mr. Cook was elected to serve as a member of the Audit Committee on September 21, 2004. No Audit Committee member serves on more than three audit committees of public companies. The Company maintains an Internal Audit Department to provide management and the Audit Committee with ongoing assessments of the Company's risk management processes and system of internal control.

The Audit Committee met five times in full session and five times via teleconference during fiscal year 2004. The Audit Committee's primary duties and responsibilities include providing assistance to the Board of Directors in fulfilling its responsibilities with respect to the oversight of:

Compensation Committee. The Compensation Committee is composed of four directors who qualify as "independent" under standards established by the SEC and the corporate governance and other listing standards of the NYSE as in effect from time to time. The Compensation Committee met five times in fiscal year 2004. John R. Cook was elected to serve as a member of the Compensation Committee on September 21, 2004. The Compensation Committee's primary duties and responsibilities include the following:

Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is composed of four directors who qualify as "independent" under standards established by the SEC and the corporate governance and other listing standards of the NYSE as in effect from time to time. The Nominating and Corporate Governance Committee met one time during fiscal year 2004. The Nominating and Corporate Governance Committee's primary duties and responsibilities include the following:

The Nominating and Corporate Governance Committee does not solicit director nominations but will consider shareholder recommendations of nominees that meet the criteria set forth in the Company's Corporate Governance Guidelines for directors to be elected at the Company's 2006 annual meeting of shareholders if submitted to the Secretary of the Company at One Marcus Square, 1618 Main Street, Dallas, Texas 75201 no later than October 16, 2005.

Executive Committee. The Executive Committee did not meet during fiscal year 2004. The bylaws of the Company give the Executive Committee the authority to manage the affairs of the Company as necessary between meetings of the Board of Directors. In practice, the Executive Committee meets infrequently and does not act except on matters that must be dealt with prior to the next scheduled Board of Directors' meeting. Corporate actions that may not be authorized by the Executive Committee include declaring a dividend, amending the Certificate of Incorporation or the bylaws, adopting an agreement of merger or consolidation or imposing a lien on substantially all of the assets of the Company.

Website Access. The charters of the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee as well as our Corporate Governance Guidelines, Code of Ethics and Conduct and the Code of Ethics for Financial Professionals may be accessed through our website at www.neimanmarcusgroup.com under the "Investor Information" section. Requests by shareholders for printed copies may be made in writing to The Neiman Marcus Group, Inc., Attn: Investor Relations, One Marcus Square, 1618 Main Street, Dallas, Texas 75201.


CORPORATE GOVERNANCE GUIDELINES

The Board has formally adopted Corporate Governance Guidelines in order to assure that the Board will have the necessary authority and practices in place to review and evaluate the Company's business operations as needed and to make decisions that are independent of the Company's management. The Corporate Governance Guidelines set forth the practices the Board will follow with respect to, among other things, Board composition and selection, Board meetings and involvement of senior management, CEO performance and succession planning, Board committees, and director compensation. A summary of the Corporate Governance Guidelines is set forth below. The full text of these guidelines may be accessed through our website at www.neimanmarcusgroup.com under the "Investor Information" section.

Board Membership Criteria. The qualifications of all candidates for election to the Board of Directors shall be considered at the time the candidate is recommended for election by the Nominating and Corporate Governance Committee. The Company seeks individuals to serve as directors with the highest personal and professional character and integrity who have outstanding records of accomplishment in diverse fields of endeavor and who have obtained leadership positions in their chosen business or profession. These persons should have demonstrated exceptional ability and judgment and have substantial expertise and experience in areas relevant to the Company's operations.

Director Responsibilities. The responsibilities of the Board of Directors shall include, but not be limited by, the following:

Service on Outside Boards. The Company has no fixed limit on the number of other boards on which a director may serve; however, the number of other board memberships shall be a consideration along with any other time commitments a prospective or current director may have in determining his or her ability to serve effectively on the Company's Board. These factors will also be considered at the time of the annual performance evaluation of the Board and its committees.

Attendance and Advance Review of Materials. All directors of the Company are expected to maintain a good attendance record and familiarize themselves with the materials distributed prior to each Board or committee meeting. Absent special circumstances, such materials are provided at least three business days prior to the meeting, and earlier for major transactions.

Board Agendas. All directors shall be entitled to place items on agendas for Board meetings. Agendas for the meetings of committees of the Board are cleared by the chairpersons of the committees, and all committee members are entitled to place items on the agenda.

Director Access to Management and Independent Advisors. At the invitation of the Board, members of senior management shall attend Board meetings or portions thereof for the purpose of participating in discussions. Generally, presentations of matters to be considered by the Board are made by the manager responsible for that area of the Company's operations. Board members shall also have access to all other members of management and employees of the Company, provided however, that, except in unusual circumstances, Board members shall report any meeting or discussion with managers or employees to the CEO of the Company. Where necessary and appropriate, Board members shall be entitled to consult with independent legal, financial and accounting advisors to assist them in carrying out their duties and responsibilities to the Company and the shareholders.

Executive Sessions of Non-Management and Independent Directors. The non-management directors shall meet in executive session, without any member of management being present, at each regularly scheduled meeting of the Board. Independent directors shall meet in executive session at least once a year, or more often, as appropriate. The Chairperson of the Nominating and Corporate Governance Committee shall act as presiding director at each executive session.

CEO Evaluation and Succession Planning. The Board, assisted by the Nominating and Corporate Governance Committee, shall develop, monitor, evaluate and, if necessary, modify a succession plan for the CEO on at least an annual basis.

Separation of the Positions of Chairman and CEO. The positions of Chairman and CEO shall be held by separate individuals in order to aid in the Board's oversight of the Company's management.

Change in Job Responsibility. The Board does not believe that any director who retires or changes employment should necessarily tender his or her resignation from the Board. The Board and the Nominating and Corporate Governance Committee will evaluate whether the affected director continues to satisfy the Board's membership criteria in light of his or her new occupational status.

Director Compensation. The Company's senior management shall assist the Compensation Committee on a biennial basis in assessing the compensation of the Company's directors measured against comparable companies. Independent directors will receive no additional compensation, in the form of consulting fees or other specific benefits, beyond that provided for service on the Board.

Director Orientation and Continuing Education. Directors are provided extensive materials regarding the Company upon their initial election to the Board, including information regarding the Company, policies, and various administrative and legal matters. Other orientation and educational programs include presentations by industry experts and key management.

Evaluation of the Board and its Committees. The Nominating and Corporate Governance Committee will oversee an annual evaluation of the effectiveness of the Board and each committee, as well as the composition, practices and organization (including the Board and committee structure, membership and leadership) of the Board.

Shareholder Ratification of Independent Auditors. Shareholders of the Company will be given the opportunity to ratify the Board's selection of independent auditors for that current fiscal year.

Board Committees. The Board shall maintain at least four standing committees: The Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee, and the Executive Committee. Each committee will perform such duties as may be assigned to it by the Board of Directors in compliance with the Company's bylaws and each committee's charter. The Audit, Compensation, and Nominating and Corporate Governance Committees shall (i) be composed entirely of independent directors, (ii) adopt a written charter setting forth their respective purposes, goals and responsibilities, and (iii) annually evaluate their respective performance. Each of the Audit, Compensation, and Nominating and Corporate Governance Committees shall also have the authority to engage outside experts, advisers and counsel.

Code of Ethics
The Board has adopted The Neiman Marcus Group, Inc. Code of Ethics and Conduct, as well as a separate Code of Ethics for Financial Professionals that applies to all financial employees including the Chief Executive Officer, the Chief Financial Officer and the Principal Accounting Officer. Both the Code of Ethics and Conduct and the Code of Ethics for Financial Professionals may be accessed through our website at www.neimanmarcusgroup.com under the "Investor Information" section.

Stock Ownership Guidelines
The Board has established minimum ownership guidelines with respect to the Company's Common Stock for all senior management personnel of the Company. Under these guidelines, the following officers, within the five year period commencing with the beginning of fiscal year 2003, will be required to own shares of the Company's Common Stock in the amounts specified below:

At the end of fiscal year 2004, ownership guidelines have been achieved as follows: Mr. Tansky, 45.1 percent; Ms. Katz, 98.9 percent; Mr. Hoffman, 34.1 percent; Mr. Gold, 35.4 percent; and Mr. Skinner, 83 percent.


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number of shares of Class A Common Stock and Class B Common Stock beneficially owned as of November 5, 2004 by:

Holders of Class A Common Stock have the right to elect up to 18 percent of the Board of Directors and holders of Class B Common Stock have the right to elect at least 82 percent of the Board of Directors. The Class A Common Stock and the Class B Common Stock are identical in all other respects. As of November 5, 2004, there were 29,281,596 shares of Class A Common Stock outstanding and 19,422,379 shares of Class B Common Stock outstanding.

*Less than 1%.

STOCK PRICE PERFORMANCE GRAPH

The following line graph compares the total cumulative return over five years on the Company's Class A Common Stock to the total cumulative return over the same period of the common stocks of companies in the Standard & Poor's 500 Index ("S&P 500") and an industry peer group consisting of:

The graph assumes that the value of an investment in the Company's Class A Common Stock and each index was $100 at August 1, 1999, and that all dividends were reinvested. The graph uses the prices of the Company's Class A Common Stock for the period since the October 22, 1999 recapitalization of the Company which created two classes of common stock, Class A and Class B. Returns on the common stocks of the companies in the peer industry group index have been weighted annually at the beginning of each fiscal year to reflect relative stock market capitalization. The comparisons in this graph are not intended to be indicative of possible future performance of the Company's stock.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

The Compensation Committee (the "Committee") administers the Company's executive compensation program. The role of the Committee is to oversee the Company's compensation plans and policies, annually review and approve all executive officers' compensation decisions, and administer the Company's incentive compensation plans, including reviewing and approving stock option grants to senior officers, including the CEO. The Committee's charter reflects these various responsibilities, and the Committee and the Board periodically review and revise the charter. The Committee's membership is determined by the Board, upon recommendation of the Nominating and Corporate Governance Committee, and is composed entirely of independent directors, as defined under standards established by the SEC and the corporate governance and other listing standards of the NYSE in effect from time to time. The Committee meets at scheduled times during the year and also takes action by written consent. During fiscal year 2004, the Committee engaged the services of an outside consulting firm to assist them in administering the compensation program. During fiscal year 2004, Walter J. Salmon chaired the Committee and Matina S. Horner and Paula Stern served as members.

Compensation Philosophy and Objectives

The Company is committed to creating long-term shareholder value. The Committee believes that the compensation program for executives should be designed to attract and retain executives who possess the high-quality skills and talent necessary to operate the Company's business at a high level of efficiency and effectiveness. The compensation philosophy seeks to provide a strong link between an executive's total earnings opportunity and the short-term and long-term performance of the Company based on the achievement of predetermined financial targets and operational goals. The core principles underlying the framework for the program are:

Executive Compensation Components and Practices

The Company's executive compensation program consists of three key components: (1) base salary; (2) short-term incentives (annual bonus); and (3) long-term incentives (stock options, restricted stock, and purchased restricted stock). The policies and practices for determining executive compensation and specifically that of the Chief Executive Officer, Burton M. Tansky, are described below:

Stock Ownership Guidelines

Because the Committee believes in linking the interests of management and shareholders, it has approved stockownership guidelines for the Company's executive officers. The holding guidelines specify a number of shares that the executive officers must accumulate and hold within a five-year period. The specific share requirements are based on a multiple of annual target total cash compensation ranging from 3X to 5X, with the higher multiples applicable to the Company's executive officers having the highest levels of responsibility.

Compensation of the Chief Executive Officer

The Committee's basis for compensation of the Chief Executive Officer, Burton M. Tansky, is based on the compensation philosophy discussed above. Mr. Tansky participates in the same executive compensation plans available to the other executive officers. For fiscal year 2004, the Committee set the base salary of Mr. Tansky at $1,250,000. He was granted a nonqualified option to purchase 76,000 shares of Class A Common Stock at an exercise price of $43.05 under the 1997 Incentive Plan. Additionally, Mr. Tansky was awarded 33,000 units of purchased restricted stock at $23.025 per unit, which represents 50 percent of the fair market value on the date of the award, and 8,100 units of restricted stock.

Mr. Tansky also received an incentive payment of $1,574,219 under the Key Employee Bonus Plan. The incentive payment was based on the Company's achievement of the maximum level of pre-tax performance goals established by the Committee for fiscal year 2004, but was paid in the current fiscal year.

The compensation level established for Mr. Tansky was in response to the Committee's and the Board's assessment of the Company's performance and accomplishments, as well as Mr. Tansky's position in the Company and the nature of his responsibilities and contributions. The Committee considered Mr. Tansky's performance in terms of the Company's success in meeting its performance targets, from both an operational and a financial standpoint, and in executing its strategic plan. The Committee also considered the Company's performance relative to its peers and competitors in the industry in evaluating Mr. Tansky's compensation.

Compliance with the Internal Revenue Code

Section 162(m) of the Internal Revenue Code (the "Tax Code") provides that compensation in excess of $1 million paid to certain executives officers is not deductible unless it is "performance-based." In order to qualify as performance-based under Section 162(m), compensation payments must be made pursuant to a plan that is administered by a committee of independent directors and must be based on achieving objective performance goals. In addition, the material terms of the plan must be disclosed to and approved by shareholders, and the Committee must certify that the performance goals were achieved before payments can be awarded.

The Committee continues to carefully consider the impact of this rule and has taken steps that are designed to comply with its provisions and to maximize the corporate tax deduction for performance-based compensation. During 1997, the Committee, the Board of Directors and shareholders of the Company approved the 1997 Incentive Plan. The 1997 Incentive Plan allows the Committee to award stock incentives and cash bonuses based on objective criteria. It is expected that stock options awarded under the 1997 Incentive Plan will generally be characterized as "performance-based" compensation and therefore will be fully deductible by the Company. In 2003, the Committee, the Board of Directors, and the shareholders approved the Key Employee Bonus Plan. The Key Employee Bonus Plan establishes performance criteria that are intended to qualify awards made under the Key Employee Bonus Plan to the named executive officers as performance-based awards. However, the Committee believes that in some instances it may be necessary to forsake a tax deduction in order to continue to attract and retain qualified executives.

EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS

The Company has entered into Confidentiality, Non-Competition and Termination Benefits Agreements with each of Burton M. Tansky, Karen W. Katz, James E. Skinner, Brendan L. Hoffman and James J. Gold. These agreements entitle them to receive severance payments in the event their employment with the Company is terminated by the Company other than for cause or due to total disability or death. Mr. Tansky will have the right to receive an amount equal to two times his annual base salary at the time of termination, payable in 24 monthly installments. Ms. Katz and Messrs. Skinner, Hoffman, and Gold will have the right to receive an amount equal to one and one-half times their annual base salary at the time of termination, payable in 18 monthly installments. These amounts will also be paid to each of these officers if they resign because they are not permitted to continue in a comparable position following a change of control.

The Neiman Marcus Group, Inc. 1997 Incentive Plan (the "1997 Incentive Plan") provides that in the event of a change in control of the Company, all outstanding options and awards become fully vested and exercisable, unless such options and awards are replaced by comparable types of options and awards having a greater or at least substantially equivalent value, as determined by the Compensation Committee.


CERTAIN RELATIONSHIPS AND TRANSACTIONS

Currently, and during fiscal year 2004, Mr. Tansky, President and Chief Executive Officer of the Company, has an outstanding loan balance under the Company's former Key Executive Stock Purchase Loan Plan (the "Loan Plan") in the amount of $369,253. The loan was used to exercise stock options and discharge tax liabilities, as provided in the Loan Plan. The loan bears interest at the annual rate of five percent, payable quarterly. Under the terms of the Loan Plan, loans become due and payable seven months after an employee leaves the Company. Effective July 30, 2002, the Loan Plan was terminated and the Company has not made any other loans to any executive officer or director under the Loan Plan, nor will the existing loan be modified in any material way. Interest on the outstanding loan to Mr. Tansky will continue to accrue and be payable quarterly until the loan is fully paid. No other executive officer, director or five percent security holder of the Company was indebted to the Company since the beginning of the Company's last fiscal year.

Gary L. Countryman, a director of the Company, is Chairman Emeritus of the Liberty Mutual Group. Liberty Mutual Company, a subsidiary of Liberty Mutual Group, underwrites some of the Company's insurance policies. These insurance policies contain terms which, in the judgment of management, are no less favorable than could be obtained from other insurance companies. During fiscal year 2004, the amount paid by the Company to Liberty Mutual Company did not exceed two percent of their consolidated gross revenues reported for the fiscal year ended December 31, 2003. As a result, the Board determined that the foregoing relationship did not impair Mr. Countryman's independence as a director.

Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the directors and executive officers of the Company and persons who own more than 10 percent of any class of the Company's Common Stock to file with the SEC an initial report of ownership of the Company's stock on a Form 3 and reports of changes in ownership on a Form 4 or a Form 5. Persons subject to Section 16 are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms that they file. Certain forms of indirect ownership and ownership of the Company's stock by certain family members are covered under these reporting requirements. As a matter of practice, the executive officers and directors are assisted by the Company in preparing initial ownership reports and reporting ownership changes.

Based solely on a review of the copies of such forms furnished to the Company, and on written representations from certain reporting persons, we believe that in fiscal year 2004, our directors, executive officers and greater than 10 percent beneficial owners met all Section 16(a) filing requirements.


EXECUTIVE AND DIRECTOR COMPENSATION

Director Compensation
Compensation for independent directors is a mix of cash and equity-based compensation. Independent directors do not receive consulting, advisory or other compensatory fees from the Company. As an employee director, Mr. Tansky receives no compensation for his service as a Board member. Richard A. Smith receives no compensation for his service as a Board member, committee chairman, or for his service as Chairman of the Board. Robert A. Smith and Brian J. Knez each receive $200,000 annually for their services as Co-Vice Chairmen of the Board, plus reimbursement for travel and incidental expenses.

Beginning with the second quarter of fiscal year 2004, each independent director was paid an annual retainer fee of $60,000. The chairman of the Audit Committee receives an additional $20,000 per year, and other committee chairs each receive an additional $15,000 per year. Board members do not receive per-meeting fees. The Board's current view is that attendance at all meetings is expected and a substantial amount of the Board's work is done in committee meetings and outside of formal meetings. Each independent director is also entitled to receive stock-based units in an amount equal to the value of the annual cash retainer. The number of stock-based units is calculated quarterly by dividing $15,000 (the amount of the quarterly cash retainer) by the trailing five-day average of the high and low price of the Class A Common Stock at the end of each fiscal quarter. Dividend equivalents in the form of additional units representing Class A Common Stock are credited to each independent directors' account on each dividend payment date equal to (i) the per-share cash dividend divided by the average of the high and low price of the Company's Class A Common Stock on the dividend payment date, multiplied by (ii) the number of units reflected in the independent director's account on the day before the dividend payment date. The value of each of the independent director's stock-based units will be payable only in cash when the independent director ceases to serve as a member of the Board of Directors of the Company. The stock-based units will be valued for payment by multiplying the applicable number of units by the average of the high and low price of the Company's Class A Common Stock during the last ten trading days before the date on which the value of the units is to be paid. These stock-based units do not carry voting or dispositive rights. Richard A. Smith, Robert A. Smith, Brian J. Knez, and Burton M. Tansky do not receive stock-based units.

Independent directors are offered the right to elect to receive all or a part of the cash portion of their fees on a deferred basis. If the deferred basis is elected, it may be in the form of cash with interest calculated at a rate equal to the average of the top rates paid by major New York banks on three-month negotiable certificates of deposit as quoted in the Wall Street Journal on the last business day of the fiscal quarter, or in the form of stock-based units, calculated on the basis of the trailing five-day average of the average of the high and low price of the Class A Common stock at the end of each fiscal quarter. Plan participants must irrevocably elect to receive the deferred funds either in a lump sum or in equal installments (not to exceed 10). Each cash installment (other than the first) shall accrue interest from the date of the first installment to the date on which such installment is paid, compounded quarterly. Dr. Horner and Mr. Countryman participated in the deferred compensation plan with respect to fees for fiscal year 2004, and they and other directors have participated in prior years.

Compensation Interlocks and Insider Participation
All members of the Compensation Committee during fiscal year 2004 qualified as independent directors, and none of them were employees or former employees of the Company. During fiscal 2004, no executive officer of the Company served on the compensation committee (or equivalent), or the board of directors, of another entity whose executive officer(s) served on the Company's Compensation Committee or Board.

Executive Compensation
The following tables set forth the annual compensation for the Chief Executive Officer and the four other most highly compensated executive officers (the "Named Executive Officers") serving at the end of fiscal year 2004.

SUMMARY COMPENSATION TABLE

OPTION GRANTS IN LAST FISCAL YEAR

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

PENSION PLAN TABLE

The Company maintains a funded, qualified pension plan known as The Neiman Marcus Group, Inc. Retirement Plan (the "Retirement Plan"). Most non-union employees over age 21 who have completed one year of service with 1,000 or more hours participate in the Retirement Plan, which pays benefits upon retirement or termination of employment. The Retirement Plan is a "career-average" plan, under which a participant earns each year a retirement annuity equal to 1 percent of his or her compensation for the year up to the Social Security wage base and 1.5 percent of his or her compensation for the year in excess of such wage base. Benefits under the Retirement Plan become fully vested after five years of service with the Company.

The Company also maintains a Supplemental Executive Retirement Plan (the "SERP"). The SERP is an unfunded, nonqualified plan under which benefits are paid from the Company's general assets to supplement Retirement Plan benefits and Social Security. Executive, administrative and professional employees (other than those employed as salespersons) with an annual base salary at least equal to a minimum established by the Company ($160,000 as of July 31, 2004) are eligible to participate. At normal retirement age (age 65), a participant with 25 or more years of service is entitled to payments under the SERP sufficient to bring his or her combined annual benefit from the Retirement Plan and SERP, computed as a straight life annuity, up to 50 percent of the participant's highest consecutive 60 month average of annual pensionable earnings, less 60 percent of his or her estimated annual primary Social Security benefit. If the participant has fewer than 25 years of service, the combined benefit is proportionately reduced. Benefits under the SERP become fully vested after five years of service with the Company.

The following table, which includes benefits under the Retirement Plan and the SERP, shows the estimated annual pension benefits payable to employees in various compensation and years of service categories. The estimated benefits apply to an employee retiring at age 65 in 2004 who elects to receive his or her benefit in the form of a straight line annuity. The amounts actually payable will be lower than the amounts shown below, since such amounts will be reduced by 60 percent of the participant's estimated primary Social Security benefit.

The following table shows the pensionable earnings and credited years of service for the Named Executive Officers as of July 31, 2004, and years of service creditable at age 65.

PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

Although Delaware law does not require that the selection by the Board of Directors of the Company's auditors be approved each year by the shareholders, the Board of Directors believes it is appropriate to submit its selection to the shareholders for their approval and to abide by the result of the shareholders' vote. The Board of Directors recommends that the shareholders ratify the appointment of Deloitte & Touche LLP as independent auditors to audit the financial statements of the Company for the fiscal year ending July 30, 2005.

Representatives of Deloitte & Touche LLP, the Company's independent auditors for fiscal year 2004, will be present at the annual meeting. Such representatives will have an opportunity to make a statement if they wish, and will be available to respond to appropriate questions from shareholders.

The Audit Committee has adopted policies and procedures for pre-approving all audit and permissible non-audit services performed by Deloitte & Touche LLP. Under these policies, the Audit Committee pre-approves the use of audit and audit-related services following approval of the independent auditors' audit plan. All services detailed in the audit plan are considered pre-approved. If, during the course of the audit, the independent auditors expect fees to exceed the approved fee estimate between 10 percent and 15 percent, those fees must be pre-approved in advance by the Audit Committee Chairman. If fees are expected to exceed the approved estimate by more than 15 percent, those fees must be approved in advance by the Audit Committee.

Other non-audit services of less than $50,000 that are not restricted services may be pre-approved by both the chief financial officer and the controller, provided those services will not impair the independence of the independent auditor. These services will be considered approved by the Audit Committee, provided those projects are discussed with the Audit Committee at its next scheduled meeting. Services between $50,000 and $100,000 in estimated fees must be pre-approved by the Chairman of the Audit Committee, acting on behalf of the entire Audit Committee. Services of greater than $100,000 in estimated fees must be pre-approved by the Audit Committee. All fee overruns will be discussed with the Audit Committee at the next scheduled meeting.

Principal Accountant Fees and Services

For the fiscal years ended July 31, 2004 and August 2, 2003, professional services were performed by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates, which includes Deloitte consulting (collectively, "Deloitte & Touche").

Audit Fees
The aggregate fees billed for the audit of the Company's annual financial statements for the fiscal years ended July 31, 2004 and August 2, 2003 and for the reviews of the financial statements included in the Company's Quarterly Reports on Form 10-Q were $1,323,000 and $917,000, respectively.

Audit-Related Fees
The aggregate fees billed for audit-related services for the fiscal years ended July 31, 2004 and August 2, 2003 were $310,000 and $177,000, respectively. These fees related to accounting research and consultation, agreed upon procedures and attestation services for certain subsidiary companies for the fiscal years ended July 31, 2004 and August 2, 2003.

Tax Fees
The aggregate fees billed for tax services for the fiscal years ended July 31, 2004 and August 2, 2003 were $370,000 and $711,000, respectively. These fees related to tax compliance and planning for the fiscal years ended July 31, 2004 and August 2, 2003.

All Other Fees
The aggregate fees for services not discussed above were $7,000 for the fiscal year ended August 2, 2003. These fees related to consulting on benefit plans for the fiscal year ended August 2, 2003. No amounts for other services were billed for the year ended July 31, 2004.

Background on Stock Compensation

The use of stock options and restricted stock have long been vital components of the Company's overall compensation philosophy, which is premised on the principle that any long-term pay-for-performance compensation should be closely aligned with shareholders' interests. Over the years, we believe that we have been very successful in achieving this objective through the use of stock options and restricted stock. Stock options align employees' interests directly with those of other shareholders, because an increase in stock price after the date of the award is necessary for eligible employees to realize any value, thus rewarding employees only upon improved stock price performance.

We also believe that stock options and restricted stock, the core of the Company's long-term employee incentive and retention program, have been very effective in enabling us to attract and retain the talent critical for a growth-focused company. The Company's general compensation philosophy is that total cash compensation should vary with the Company's performance in achieving financial and non-financial objectives, and that any long-term incentive compensation should be closely aligned with shareholders' interests.

Without stock options and restricted stock, the Company would be forced to consider cash replacement alternatives to provide a market-competitive total compensation package necessary to attract, retain and motivate the employee talent necessary for the continued success of the Company. These cash replacement alternatives would then reduce the cash available for investment in innovation and technology. We intend to continue to use stock options and restricted stock as our primary means of providing equity compensation to key individuals. Although the 2005 Plan does provide the flexibility to use additional forms of equity compensation, we expect to use nonqualified stock options and various forms of restricted stock and restricted stock units as the primary forms of equity compensation.

We strongly believe that our equity compensation program and emphasis on creating long-term shareholder value have been integral to our success in the past and will be important to our future growth. Therefore, we consider approval of the 2005 Plan vital to the future success of the Company.

Purpose of the 2005 Plan

The 2005 Plan will allow the Company, under the direction of the Compensation Committee, to make grants of stock options, restricted stock, restricted stock units, performance-based stock awards, and stock appreciation rights (any of which may or may not require the satisfaction of performance objectives) to key employees and directors of the Company and our affiliates who, in the opinion of the Compensation Committee, are in a position to make a significant contribution to the success of the Company or our affiliates. The purpose of these awards is to attract and retain key individuals, further align employee and shareholder interests, and to closely link compensation with Company performance. The 2005 Plan will provide an essential component of the total compensation package, reflecting the importance that the Company places on aligning the interests of key individuals with those of our shareholders.

Key Terms

The following is a summary of the key provisions of the 2005 Plan.

Plan Administration and Discretionary Authority

The 2005 Plan will be administered by the Compensation Committee, which is made up entirely of independent directors. The Compensation Committee shall have the power (i) to interpret the 2005 Plan, (ii) determine eligibility, amount and nature of awards, and (iii) accelerate the exercise, vesting or payment of an award, and (iv) require participants to hold a stated number or percentage of shares acquired pursuant to an award for a stated period. The Compensation Committee shall also have authority with respect to all matters relating to the discharge of its responsibilities and the exercise of its authority under the 2005 Plan. Performance-based requirements will be considered in light of the Company's total compensation program and the significant level of pay-for-performance requirements already incorporated into our compensation practices.

Vesting and Exercise of Stock Options

The Compensation Committee will determine the time at which an option will vest and become exercisable, provided that, in most cases, an option will not vest sooner than one year after the date of grant. The exercise price of a stock option granted under the 2005 Plan shall not be less than the closing price of the Class A Common Stock on the date of grant. The closing price of the Class A Common Stock on November 5, 2004 was $67.13. No option shall be exercisable later than ten years after the date of grant. The exercise price of an option may be payable in cash, or, at the discretion of the Compensation Committee, with previously acquired nonforfeitable, unrestricted shares of Class A Common Stock that have been held by the participant for at least six months and have an aggregate fair market value at the time of exercise equal to the total exercise price, or a combination of such shares and cash.

Restricted Stock and Restricted Stock Units

The Compensation Committee will determine the terms, conditions, and restrictions on restricted stock, including, without limitation, terms relating to vesting, purchase price, if any, and matching shares. Except under certain circumstances, the restricted period for shares of restricted stock will be for a minimum of three years. Subject to the terms and conditions of the award agreement, a participant holding restricted stock will have the right to receive dividends on the shares of restricted stock during the restricted period, to vote the restricted stock and enjoy all other shareholder rights with respect to such shares.

Similarly, the Compensation Committee will determine the terms, conditions, and restrictions on restricted stock units, including, without limitation, terms relating to vesting, purchase price, if any, matching units, and dividend rights. Upon the lapse of restrictions with respect to each restricted stock unit, the participant will be entitled to receive one share of Class A Common Stock or an amount of cash equal to the fair market value of one share of Class A Common Stock, as provided in the award agreement. Except under certain circumstances, the restricted period for shares of restricted stock units will be for a minimum of three years.

Performance-Based Stock Awards

Each award agreement for a performance award will set forth, among other things (i) the amount a participant may earn in the form of cash or shares of Class A Common Stock, (ii) the performance criteria and level of achievement versus such criteria that will determine the amount payable or number of shares of Class A Common Stock to be granted, issued, retained and/or vested, (iii) the performance period over which performance is to be measured, (iv) the timing of any payments to be made, and (v) restrictions on the transferability of the award. The performance measure(s) to be used for purposes of performance awards may be described in terms of objectives that are related to the individual participant or objectives that are Company-wide or related to a subsidiary, division, department, region, function or business unit of the Company in which the participant is employed.

Stock Appreciation Rights

The Compensation Committee will determine the time at which a stock appreciation right will vest and become exercisable, provided that, in most cases, a stock appreciation right will not vest sooner than one year after the date of grant. Generally, the exercise price of a stock appreciation right shall not be less than 100 percent of the fair market value of the Class A Common Stock on the date of grant and no stock appreciation right will be exercisable later than ten years after the date of the grant.

New Plan Benefits

The number of awards that will be received by or allocated to our executive officers, directors and employees under the 2005 Plan is undeterminable at this time.

Withholding Taxes

All applicable withholding taxes will be deducted from any payment made under the 2005 Plan. Payment of withholding taxes may be made by withholding shares of Class A Common Stock from any payment of Class A Common Stock due or by the delivery of previously acquired shares of Class A Common Stock, in either case having an aggregate fair market value equal to the amount of the required withholding taxes. No payment will be made and no shares of Class A Common Stock will be issued pursuant to any award made under the 2005 Plan until the applicable tax withholding obligations have been satisfied.

Eligibility Under Section 162(m)

The Compensation Committee will establish the criteria under which a performance award made pursuant to the 2005 Plan shall satisfy Section 162(m) of the Tax Code. To the extent that awards are intended to qualify as "performance-based compensation" under Section 162(m), the performance criteria will be established in writing by the Compensation Committee based on one or more, or any combination, of the following performance goals:

The maximum amount that may be paid in cash pursuant to performance awards granted to a participant in any one fiscal year that are intended to satisfy the Section 162(m) requirements is $2,000,000. If an award provides for a performance period longer than one fiscal year, the limit will be multiplied by the number of full fiscal years in the performance period. The Compensation Committee may reduce, but not increase, the amount payable and the number of shares to be granted, issued, retained or vested pursuant to a performance award.

Transferability

No award of incentive stock options or restricted stock during its restricted period may be sold, transferred, pledged, exchanged, or disposed of, except by will or the laws of descent and distribution. If provided in the award agreement, all other awards may be transferred by a participant to a permitted transferee.

Amendments

The Board may terminate, amend, or suspend the 2005 Plan, provided that no action may be taken by the Board without shareholder approval to:

The Board may not terminate, amend or suspend the 2005 Plan in any manner that will adversely affect in any material way any award previously granted without the consent of the participant holding the award.

Adjustments

In the event of a stock dividend, recapitalization, stock split, subdivision or consolidation of the Company's Class A Common Stock, or any similar event affecting the Company's Class A Common Stock, the Compensation Committee shall adjust the number and kind of shares available for grant under the 2005 Plan, and subject to the various limitations set forth in the 2005 Plan, the number and kind of shares subject to outstanding awards under the 2005 Plan, and the exercise or settlement price of outstanding stock options and of other awards.

U.S. Tax Consequences

Stock option grants under the 2005 Plan may be intended to qualify as incentive stock options under Section 422 of the Tax Code or may be non-qualified stock options governed by Section 83 of the Tax Code. Generally, no federal income tax is payable by a participant upon the grant of a stock option and no deduction is taken by the Company. Under current tax laws, if a participant exercises a non-qualified stock option, he or she will have taxable income equal to the difference between the market price of the Class A Common Stock on the exercise date and stock option grant price. The Company will be entitled to a corresponding deduction on our income tax return. A participant will have no taxable income upon exercising an incentive stock option (except that alternative minimum tax may apply), and the Company will receive no deduction when an incentive stock option is exercised. The treatment for a participant of a disposition of shares acquired through the exercise of an option depends on how long the shares were held and on whether the shares were acquired by exercising an incentive stock option or a non-qualified stock option. The Company may be entitled to a deduction in the case of a disposition of shares acquired under an incentive stock option before the applicable holding periods have been satisfied.

Restricted stock and restricted stock units are governed by Section 83 of the Tax Code. Generally, no taxes are due when the award is initially made, but the award becomes taxable when it is no longer subject to a "substantial risk of forfeiture" (i.e., becomes vested or transferable). Income tax is paid on the value of the stock or units at ordinary rates when the restrictions lapse, and then at capital gain rates when the shares are sold.

As described above, awards granted under the 2005 Plan may qualify as "performance-based compensation" under Section 162(m) in order to preserve federal income tax deductions by the Company with respect to annual compensation required to be taken into account under Section 162(m) that is in excess of $1 million and paid to the Chief Executive Officer or one of the Company's four most highly compensated executive officers. To so qualify, options and other awards must be granted under the 2005 Plan by a committee consisting solely of two ore more "outside directors" (as defined under Section 162 regulations) and satisfy the 2005 Plan's limit on the total number of shares that may be awarded to any one participant during any fiscal year. In addition, for awards other than options to qualify, the grant, issuance, vesting or retention of the award must be contingent upon satisfying one or more of the performance criteria described above, as established by a committee consisting solely of two or more "outside directors" pursuant to the requirements of Section 162(m) of the Tax Code and the Section 162 regulations.

Recommendation of the Board
The Board of Directors recommends that you vote "FOR" The Neiman Marcus Group, Inc. 2005 Stock Incentive Plan.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information regarding equity compensation plans approved by shareholders and equity compensation plans not approved by shareholders as of July 31, 2004.

PROPOSAL 4: PROPOSAL BY A SHAREHOLDER CONCERNING CUMULATIVE VOTING

Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue, N.W., Suite 215, Washington, D.C. 20037, the record owner of 150 shares of the Company's Class A Common Stock, has submitted for consideration at the annual meeting the proposal set forth below. Following the proposal is the shareholder's statement in support of her proposal, in the form received by the Company, and the statement of the Company's Board of Directors in opposition to the proposal.

"RESOLVED: That the shareholders of Neiman Marcus, assembled in Annual Meeting in person and by proxy, hereby request the Board of Directors to take the necessary steps to provide for cumulative voting in the election of directors, which means each stockholder shall be entitled to as many votes as shall equal the number of shares he or she owns multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single candidate, or any two or more of them as he or she may see fit."

"REASONS: Many states have mandatory cumulative voting, so do National Banks. In addition, many corporations have adopted cumulative voting."

"Last year the owners of 15,599,851 shares, representing approximately 37 percent of shares voting, voted for this proposal."

"If you AGREE, please mark your proxy FOR this resolution."

Statement of the Board of Directors in Opposition

The Company's present system for election of directors, which is similar to that of most major publicly traded corporations, allows all shareholders to vote on the basis of their share ownership. The Board of Directors believes that the current voting system is most likely to produce an effective Board of Directors that will represent the interests of all the Company's shareholders. Cumulative voting, which permits relatively small groups of shareholders to elect directors to represent their particular interests or points of view, could result in the creation of an adversarial Board of Directors, where each director advocates the positions of the group responsible for his or her election rather than the positions which are in the best interests of the Company and all of the shareholders. The Board of Directors believes that a director must act, at all times in the best interests of all shareholders, rather than as a representative of any special interest group.

Approval of this advisory proposal requires a favorable vote of a majority of the shares present or represented at the annual meeting. On this proposal, abstentions will have the same effect as votes cast against the proposal and broker non-votes will have no effect. Providing for cumulative voting pursuant to Section 214 of the Delaware General Corporation Law would require an amendment to the Company's Certificate of Incorporation. No such proposal has been placed before the shareholders, but if it were, it would require the favorable vote of the holders of shares representing at least a majority of the issued and outstanding Class A Common Stock and Class B Common Stock voting as a single class.

Recommendation of the Board
The Board of Directors recommends that you vote "AGAINST" this shareholder proposal.


ADDITIONAL MEETING INFORMATION

Meeting Proposals.  There are no other matters that the Board intends to present, or has reason to believe others will present, at the annual meeting. If other matters are properly presented for voting at the annual meeting, the persons named as proxies will vote in accordance with their best judgment on such matters.

Proxy Solicitation.  The Company will bear the expense of soliciting proxies, and we have retained Innisfree M&A Incorporated for a fee of $15,000, plus reasonable expenses, to distribute and solicit proxies. Certain of our directors, officers and other employees, without additional compensation, may also solicit proxies personally or in writing, by telephone, e-mail or otherwise. We are required to request that brokers and nominees who hold stock in their names furnish the Company's proxy material to the beneficial owners of the stock and we must reimburse such brokers and nominees for the expenses of doing so in accordance with certain statutory fee schedules.


OTHER MATTERS

2006 Shareholder Proposals.  Shareholders, who, in accordance with SEC Rule 14a-8, wish to present proposals for inclusion in the proxy materials to be distributed in connection with the 2006 annual meeting Proxy Statement must submit their proposals so that they are received at the Company's principal executive offices no later than the close of business on July 25, 2005. As the rules of the SEC make clear, simply submitting a proposal does not guarantee that it will be included.

In accordance with our bylaws, in order to be properly brought before the 2006 annual meeting, a shareholder's notice of the matter the shareholder wishes to present, or the person or persons the shareholder wishes to nominate as a director, must be delivered to the Secretary of the Company at our principal executives offices not less than 90 days before the first anniversary of the date of this year's annual shareholders' meeting. As a result, any notice given by a shareholder pursuant to these provisions of our bylaws (and not pursuant to the SEC's Rule 14a-8) must be received by October 16, 2005.

To be in proper form, a shareholder's notice must include (a) the name and address, as they appear on the Company's books, of the shareholder who is submitting the proposal, and the name and address of the beneficial owner, if any, on whose behalf the proposal is made; (b) the number and class of shares of stock of the Company that are beneficially owned on the date of the notice by the shareholder, or the beneficial owner on whose behalf the proposal is made; (c) a representation that the shareholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make such proposal; (d) a description of the business desired to be brought before the meeting and the reasons for making such proposal at the meeting; (e) any material interest of the shareholder of record and the beneficial owner, if any, on whose behalf the proposal is made; and (f) a statement as to whether such shareholder of record, and the beneficial owner, if any, intend to solicit proxies in support of such proposal.

Notices of intention to present proposals at the 2006 annual meeting should be addressed to The Neiman Marcus Group, Inc., Attn: Secretary, One Marcus Square, 1618 Main Street, Dallas, Texas 75201. The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements.

Director Recommendations/Nominations.  Nominees for director will be selected based on, among other things: (i) character and integrity; (ii) related business and management experience; (iii) familiarity with the business of the Company; (iv) freedom from conflicts of interest; (v) sufficient time to devote to the affairs of the Company; and (vi) reputation in the business community. In connection with the selection of nominees for director, due consideration will be given to the Board's overall balance of diversity of perspectives, backgrounds and experiences. Accordingly, the Nominating and Corporate Governance Committee will also consider factors such as experience as a director of a large public company and knowledge of particular industries.

Although not an automatic disqualifying factor, the inability of a candidate to meet the independence and other corporate governance standards of the NYSE and the SEC will be a significant negative factor in any assessment of a candidate's suitability.

The Nominating and Corporate Governance Committee, which is responsible for the nomination of candidates for appointment or election to the Company's Board of Directors, will continue to use a variety of means for identifying potential nominees for director, including the use of outside search firms and recommendations from current Board members and from shareholders. In determining whether to nominate a candidate, the Nominating and Corporate Governance Committee will consider the composition and capabilities of serving Board members, as well as additional capabilities considered necessary or desirable in light of existing Company needs.

One or more of the members of the Nominating and Corporate Governance Committee may interview, or have an outside search firm interview, a prospective candidate who is identified as having high potential to satisfy the expectations, requirements, qualities and responsibilities for Board membership. Prospective candidates may also be interviewed by other directors who are not members of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee may also elect to contact other sources, including persons serving on other boards with the candidate, as they deem appropriate. Reports from these interviews or from Board members with personal knowledge and experience with a candidate, resumes, information provided by other contacts and any other information deemed relevant by the Nominating and Corporate Governance Committee are then considered in determining whether a candidate should be nominated.

In considering whether to nominate directors who are eligible to stand for re-election, the Nominating and Corporate Governance Committee considers the quality of past director service, attendance at Board and committee meetings, compliance with the Company's Corporate Governance Guidelines, as well as whether the director continues to possess the qualities and capabilities considered necessary or desirable for director service, input from other Board members concerning the performance of that director and the independence of the director.

The Nominating and Corporate Governance Committee will consider candidates recommended by a Company shareholder. In general, candidates recommended by shareholders will be evaluated under the same process as candidates recommended by existing directors, Company officers or third-party search firms. However, the Nominating and Corporate Governance Committee will additionally seek and consider information concerning the relationship between a shareholder's recommended nominee and that shareholder to determine whether the nominee can effectively represent the interests of all shareholders. Except in unusual circumstances, the Nominating and Corporate Governance Committee will not evaluate a shareholder-recommended candidate unless and until the shareholder advises that the potential candidate has indicated a willingness to serve as a director, to comply with the expectations and requirements for Board service, and to provide all the information required to conduct an evaluation.

Form 10-K. A copy of the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2004, including the financial statements and the financial statement schedules, if any, but not including exhibits, will be furnished at no charge to each person to whom a Proxy Statement is delivered upon the written request of such person addressed to The Neiman Marcus Group, Inc., Attn: Investor Relations, One Marcus Square, 1618 Main Street, Dallas, Texas 75201.

1.1    Establishment and Purpose. The Neiman Marcus Group, Inc. ("NMG") hereby establishes The Neiman Marcus Group, Inc. 2005 Stock Incentive Plan, as set forth in this document. The purpose of the Plan is to attract and retain highly qualified individuals and to align the interests of key individuals with those of the stockholders of NMG. NMG is committed to creating long-term stockholder value. NMG's compensation philosophy is based on a belief that NMG can best create stockholder value if key employees, directors, and certain others providing services to the Company act and are rewarded as business owners. NMG believes that an equity stake through equity compensation programs effectively aligns employee and stockholder interests by motivating and rewarding long-term performance that will enhance stockholder value.

1.2    Effectiveness and Term. This Plan shall become effective as of January 1, 2005, subject to its approval by the holders of at least a majority of the shares of Common Stock present or represented and entitled to vote at the 2005 annual meeting of the stockholders of NMG duly held in accordance with applicable law. Unless terminated sooner by action of the Board pursuant to the provisions of Section 14.1, this Plan shall terminate on January 1, 2015.

2.1    "Affiliate" means a "parent corporation" or a "subsidiary corporation" of NMG, as those terms are defined in sections 424(e) and (f) of the Code, respectively.

2.2    "Award" means an award granted to a Participant in the form of Options, SARs, Restricted Stock, Restricted Stock Units, Performance Awards or Other Incentive Awards, whether granted singly or in combination.

2.3    "Award Agreement" means a written agreement between NMG and a Participant that sets forth the terms, conditions, restrictions and limitations applicable to an Award.

2.4    "Board" means the Board of Directors of NMG.

2.5    "Cash Dividend Right" means a contingent right, granted in tandem with a specific Restricted Stock Unit Award, to receive an amount in cash equal to the cash distributions made by NMG with respect to a share of Common Stock during the period such Award is outstanding.

2.6    A "Change of Control" shall be deemed to have taken place for purposes of the Plan:

2.7    "Code" means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations.

2.8    "Committee" means the Compensation Committee of the Board or such other committee of the Board as may be designated by the Board to administer the Plan, which committee shall consist of two or more members of the Board, each of whom is both a "non-employee director" within the meaning of Rule 16b-3 promulgated under the Exchange Act and an "outside director" within the meaning of such term as contained in applicable regulations interpreting section 162(m) of the Code; provided, however, that with respect to the application of the Plan to Awards made to Outside Directors, "Committee" means the Board. To the extent that no Committee exists that has the authority to administer the Plan, the functions of the Committee shall be exercised by the Board. If for any reason the appointed Committee does not meet the requirements of Rule 16b-3 or section 162(m) of the Code, such noncompliance with such requirements shall not affect the validity of Awards, grants, interpretations or other actions of the Committee.

2.9    "Common Stock" means the Class A common stock of NMG, $.01 par value per share, or any stock or other securities of NMG hereafter issued or issuable in substitution or exchange for the Common Stock.

2.10    "Company" means NMG and any Affiliate.

2.11    "Dividend Unit Right" means a contingent right, granted in tandem with a specific Restricted Stock Unit Award, to have an additional number of Restricted Stock Units credited to a Participant in respect of the Award equal to the number of shares of Common Stock that could be purchased at Fair Market Value with the amount of each cash distribution made by NMG with respect to a share of Common Stock during the period such Award is outstanding.

2.12    "Effective Date" means the date this Plan becomes effective as provided in Section 1.2.

2.13    "Employee" means an employee of the Company; provided, however, that the term "Employee" does not include a nonemployee director or an individual performing services for the Company who is treated for tax purposes as an independent contractor at the time of performance of the services.

2.14    "Exchange Act" means the Securities Exchange Act of 1934, as amended.

2.15    "Fair Market Value" means (a) if the Common Stock is listed on a national securities exchange, the closing price per share on a given date; (b) if the Common Stock is traded on an exchange or market in which prices are reported in terms of bid and asked prices, the average of the closing bid and asked prices for a share on a given date; and (c) if the Common Stock is not publicly traded at the time a determination of fair market value is required to be made hereunder, the determination of fair market value shall be made in good faith by the Committee.

2.16    "Fiscal Year" means the 52 or 53-week period ending on the Saturday nearest to July 31 of each year.

2.17    "Grant Date" means the date an Award is determined to be effective by the Committee upon the grant of such Award.

2.18    "Incentive Stock Option" means an Option that is intended to meet the requirements of section 422(b) of the Code.

2.19    "Matching Restricted Stock" shall have the meaning given such term in Section 9.2.

2.20    "Matching Restricted Stock Unit" shall have the meaning given such term in Section 10.2.

2.21    "NMG" means The Neiman Marcus Group, Inc., a Delaware corporation, or any successor thereto.

2.22    "Nonqualified Stock Option" means an Option that is not an Incentive Stock Option.

2.23    "Option" means an option to purchase shares of Common Stock granted to a Participant pursuant to Article VII. An Option may be either an Incentive Stock Option or a Nonqualified Stock Option, as determined by the Committee.

2.24    "Other Incentive Award" means an incentive award granted to a Participant pursuant to Article XII.

2.25    "Outside Director" means a "non-employee director" of NMG, as defined in Rule 16b-3.

2.26    "Participant" means an Employee, director, or other individual or entity that has been granted an Award; provided, however, that no Option or Award that may be settled in Common Stock may be issued to a Participant that is not a natural person.

2.27    "Performance Award" means an Award granted to a Participant pursuant to Article XI to receive cash or Common Stock conditioned in whole or in part upon the satisfaction of specified performance criteria.

2.28    "Permitted Transferee" shall have the meaning given such term in Section 15.4.

2.29    "Plan" means The Neiman Marcus Group, Inc. 2005 Stock Incentive Plan, as in effect from time to time.

2.30    "Purchased Restricted Stock" shall have the meaning given such term in Section 9.2.

2.31    "Purchased Restricted Stock Unit" shall have the meaning given such term in Section 10.2.

2.32    "Restricted Period" means the period established by the Committee with respect to an Award of Restricted Stock or Restricted Stock Units during which the Award remains subject to forfeiture.

2.33    "Restricted Stock" means a share of Common Stock granted to a Participant pursuant to Article IX that is subject to such terms, conditions, and restrictions as may be determined by the Committee.

2.34    "Restricted Stock Unit" means a fictional share of Common Stock granted to a Participant pursuant to Article X that is subject to such terms, conditions, and restrictions as may be determined by the Committee.

2.35    "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the Exchange Act, or any successor rule or regulation that may be in effect from time to time.

2.36    "Stock Appreciation Right" or "SAR" means a right granted to a Participant pursuant to Article VIII with respect to a share of Common Stock to receive upon exercise cash, Common Stock or a combination of cash and Common Stock, equal to the appreciation in value of a share of Common Stock.

3.1    Plan Administrator and Discretionary Authority. The Plan shall be administered by the Committee. The Committee shall have total and exclusive responsibility to control, operate, manage and administer the Plan in accordance with its terms. The Committee shall have all the authority that may be necessary or helpful to enable it to discharge its responsibilities with respect to the Plan. Without limiting the generality of the preceding sentence, the Committee shall have the exclusive right to: (i) interpret the Plan and the Award Agreements executed hereunder; (ii) decide all questions concerning eligibility for, and the amount of, Awards granted under the Plan; (iii) construe any ambiguous provision of the Plan or any Award Agreement; (iv) prescribe the form of Award Agreements; (v) correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement; (vi) issue administrative guidelines as an aid to administering the Plan and make changes in such guidelines as the Committee from time to time deems proper; (vii) make regulations for carrying out the Plan and make changes in such regulations as the Committee from time to time deems proper; (viii) determine whether Awards should be granted singly or in combination; (ix) to the extent permitted under the Plan, grant waivers of Plan terms, conditions, restrictions and limitations; (x) accelerate the exercise, vesting or payment of an Award when such action or actions would be in the best interests of the Company; (xi) require Participants to hold a stated number or percentage of shares of Common Stock acquired pursuant to an Award for a stated period; and (xii) take any and all other actions the Committee deems necessary or advisable for the proper operation or administration of the Plan. The Committee shall have authority in its sole discretion with respect to all matters related to the discharge of its responsibilities and the exercise of its authority under the Plan, including without limitation its construction of the terms of the Plan and its determination of eligibility for participation in, and the terms of Awards granted under, the Plan. The decisions of the Committee and its actions with respect to the Plan shall be final, conclusive and binding on all persons having or claiming to have any right or interest in or under the Plan, including without limitation Participants and their respective Permitted Transferees, estates, beneficiaries and legal representatives. In the case of an Award intended to be eligible for the performance-based compensation exemption under section 162(m) of the Code, the Committee shall exercise its discretion consistent with qualifying the Award for such exemption.

3.2    Liability; Indemnification. No member of the Committee, nor any person to whom it has delegated authority, shall be personally liable for any action, interpretation or determination made in good faith with respect to the Plan or Awards granted hereunder, and each member of the Committee (or delegatee of the Committee) shall be fully indemnified and protected by NMG with respect to any liability he may incur with respect to any such action, interpretation or determination, to the maximum extent permitted by applicable law.

1. Available Shares.